Market Forces in Investor-Owned Health Maintenance Organizations

What is the relationship between market forces and the investor-owned, for-profit managed care industry? Researchers at the University of Pennsylvania 1) explored whether the behavior of markets which supply capital to HMOs and investor-owned HMOs (IOHMOs) offer different incentives for behavior or offer capital on different terms than in other industries; 2) identified market characteristics that are strongly associated with variations in the entry, investment, and production behavior of HMOs and IOHMOs; and 3) explained how HMOs and IOHMOs behave in different markets and determining whether that behavior over time leads to movement toward competitive market equilibrium, with HMOs earning profits at the competitive level or whether HMOs in some markets retain monopoly power and are able to keep prices and profits above competitive levels for long periods of time. The objective of the study was to provide a better understanding of the incentives provided to IOHMOs by the financial markets in which they obtain capital and in which their performance is evaluated. In addition, it informed the field on the impact of IOHMOs on coverage availability, premiums, the volume of medical services, and other costs and profits.